Are you the type whose glass is half full or half empty? Individuals tend to be naturally biased toward optimism or pessimism, and this bias can influence retirement timing and wealth.
Is your glass half full of water or half empty?
Experts believe that a prejudice to optimism or pessimism is about 25% genetic, but strongly influenced by upbringing, relationships, schoolability, and other early successes and failures. It also depends on your age.a study We found that optimism generally increases through young adulthood, levels off between the ages of 55 and 70, and then slowly declines again. (Yes, it roughly coincides with the age at which you are happiest.)
No matter how you got to where you are today, it’s important to understand how your biases can affect your financial planning and, therefore, your future.
Optimism, Pessimism, and Financial Planning
A bias towards optimism or pessimism can have a huge impact on your financial outcomes in life, especially in retirement.
lively discussion in New Retirement Facebook Group We uncovered that overly negative and positive biases can dramatically affect retirement outcomes.
And perhaps even financial services firms and news outlets are over-emphasizing the doom and gloom when it comes to some people’s financial outlook.
If you have very conservative (negative) financial assumptions, the math tells you that you will need to save more to retire safely, and you will need to be very cautious about your spending. The more optimistic your assumptions are, the more likely your projections will lead you to believe that you can retire sooner and spend more.
The reality is that your biases affect your financial results.
realistic optimism wins
Being pessimistic certainly has its benefits. A backup plan is the key to success.
But optimists, especially realistic optimists, tend to do better overall.
Optimist:
- Live long
- Work better towards achieving your goals
- get healthier
- eat better
- Experience less of the negative effects of stress
- enjoy stronger relationships
Being an optimist is especially beneficial financially.Harvard Business Review report Or:
“After adjusting for wealth, income, skills and other demographics to level the playing field, the data clearly showed that optimists tended to experience better financial health and spend their money healthier than pessimists. Less than half of people have started it.In addition, optimists are more likely to seek and follow advice from people they trust.In my opinion, the most compelling finding is how optimists Felt, reported 145 fewer days each year of being stressed about finances than pessimists. “
And that’s not all. The study concludes that optimists are more likely to earn more money and get promoted throughout their careers.
How to Fight Prejudice for Better Financial Outcomes
Depending on your level of self-awareness, you may not even know if you’re too optimistic or too pessimistic about your financial future.
It may be helpful to evaluate your current financial plan and execute worst-case and best-case scenarios. NewRetirement Planner makes it easy. Consider the following:
- inflation
- return on investment
- unexpected expenses or unexpected profits,
- Housing evaluation
- Long-term care may be required
- longevity
- worth your time
- how you want to spend time with
Consider which scenarios are more uncomfortable and why. These feelings may reveal prejudices you weren’t aware of.
Overall, this exercise will help build your confidence that you can get through whatever happens. It may also prove necessary to reevaluate baseline assumptions or create additional contingencies.
How to boost optimism and use pessimism to your advantage
No matter how optimistic or pessimistic your thinking is today, you can change it. You can control how you see the world.
Here are five tips to boost your optimism.
1. Get informed
The past, or our personal understanding of the past, influences how we think about the future. and, research It suggests that people with more information tend to be more optimistic.
As you know, people tend to be oblivious to past improvements in world affairs. And this lack of information can lead to pessimism and negatively impact financial results.
for example: The stock market has had some dips, but has always recovered and surpassed all-time highs. However, many people are afraid to invest in stocks because they feel that it is too volatile. Others make the big mistake of selling when the stock market drops for fear of further losses.
2. Practice gratitude
List three things you are grateful for at the beginning or end of your day. This 2-minute exercise of hers rewired pessimistic seniors to become more optimistic in just her 2 weeks.
3. Visualize the future you want
Imagine a future where you have achieved your goals. This is a powerful way to make things happen. Imagining the future helps your brain recognize what needs to happen.
4. Focus on progress, not results
Set long-term lifelong goals. However, measure your progress in much shorter units of time.
5. Dive in to learn more
Dr. Martin Seligman is considered the father of positive psychology. his book, Optimism Learned: How to Change Your Mind and Your LifeBased on over 20 years of clinical research, demonstrates how optimism can improve quality of life and how everyone can learn to practice optimism.
So are you an optimist or a pessimist? Test to find out
So are you an optimist or a pessimist?
Seligman defines optimist and pessimist thinking styles in terms of how people react when something bad happens:
Optimist: Optimists believe that negative situations are short-lived, specific to the situation at hand (not a universal truth), and have little to do with one’s personality or skills.
Pessimist: Pessimists believe that bad situations are more persistent and pervasive. That is, we believe that whatever happens is persistent and global in nature. They also tend to feel responsible.
So how do you react to bad situations? In fact, most people can be optimistic or pessimistic depending on the exact situation.
A test to determine if you are an optimist or a pessimist
Want to know how you objectively rate yourself as an optimist or a pessimist? Try the following test.
- Life Orientation Test (LOT-R): Developed by psychologist Michael Shyer, the LOT-R test is a 10-item quiz that measures how optimistic or pessimistic you are about the future.
- Scale of success: Developed by Michelle Ghelan, the Success Scale tests your optimism, engagement and support for your work.
- Optimism index: It’s a quick and easy 10 question test.